Santander UK Performance

We provide these mostly for owner- occupiers, with buy-to-let mortgages for non-professional landlords.

Through our joint ventures, Hyundai Capital UK Ltd and Volvo Car Financial Services UK Limited, we provide retail point of sale customer finance and wholesale finance facilities (stock finance).

We provide these to SMEs and mid-sized corporates typically with annual turnover up to £500m, Commercial Real Estate and Social Housing customers.

We transfer Stage 3 exposures to Stage 2 or Stage 1 when we no longer consider them to be credit impaired.

We transfer Stage 2 exposures to Stage 1 when we no longer consider them to have suffered a SICR.

Where we identified a SICR using quantitative criteria, we transfer the exposures to Stage 1 when they no longer meet the original PD-based transfer criteria.

We manage liquidity risk on a consolidated basis in our CFO division, which is our centralised function for managing funding, liquidity and capital.

Under the PRA’s liquidity rules, Santander UK plc and its subsidiary Cater Allen Limited form the RFB Domestic Liquidity Sub-group (the RFB DoLSub), which allows them to collectively meet regulatory requirements to manage liquidity risk.

Each member of the RFB DoLSub will support the other by transferring surplus liquidity in times of stress.

Liquidity risk is the risk that we do not have sufficient liquid financial resources available to meet our obligations as they fall due, or we can only secure such resources at high cost.

In this section, we describe our key liquidity risks, including our sources and uses of liquidity, and how we manage liquidity risk.

Through our Liquidity Risk Appetite (LRA) framework, we manage our market liquidity risks, funding or structural liquidity risk and contingent liquidity risk, wherever they arise.

In addition, from time to time, we may take credit insurance over individual transactions, and at a portfolio level we execute significant risk transfer transactions, which typically also result in reducing RWAs.

We also reduce risk by clearing trades through central counterparties (CCPs) where possible.

The forms of collateral we take to reduce credit risk include: residential and commercial property; other physical assets, including motor vehicles; liquid securities, including those transferred under reverse repurchase agreements; cash, including cash used as collateral for derivative transactions; and receivables.

We can reduce credit risk exposures by applying netting.

We do this mainly for derivative and repurchase transactions with financial institutions.

For derivatives and securities finance transactions, we use standard master netting agreements.

We take a multi-layered approach to stress testing to capture risks at various levels.

This ranges from sensitivity analysis of a single factor to a portfolio, to wider exercises that cover all risks across our entire business.

We use stress test outputs to design business plans that aim to mitigate potential impacts of possible stress scenarios.

These are tests in which we identify and assess scenarios that are most likely to cause our business model to fail.

We describe each scenario using a narrative setting out how events might unfold, as well as a market and/or economic context.

For example, the key economic factors we reflect in our Internal Capital Adequacy Assessment Process (ICAAP) scenarios include house prices, interest rates, unemployment levels, inflation rates, and the size of the UK economy.

The following table sets out the financial assets that were forborne while they had a loss allowance measured at lifetime ECL.

At 31 December 2025 the amount of forborne assets net of deferred income was £11m (2024: £5.4m).

There were no other loan modifications made in 2025.

We only make forbearance arrangements for lending to customers.

We base forbearance type on the first forbearance we applied.

There were no loan modifications made in 2025 and 2024.

The viability of Santander UK is reliant on preserving a sufficient level of capital and adequately funding the balance sheet.

The Directors’ assessment also takes account of the potential impacts on Santander UK’s performance, capital position, and liquidity and funding profile, including those arising from mixed signals about the UK's recent economic performance.

For capital, liquidity and funding purposes, Santander UK operates on a standalone basis and is subject to regular and rigorous monitoring by external parties.

We remain strongly capitalised, with our capital position well above the regulatory requirements and remain focused on capital efficiency.

A strong LCR of 162% (Dec-24: 154%), increased largely due to a reduction in the customer funding gap in 2025.

The key components of the operational risk toolset we use to measure risks under our NFR framework are:

It involves a top-down assessment of our key operational risks.

Our Operational risk scenario analysis covers major Operational risks that are extreme but plausible and requires participants across the business to consider and assess the financial and qualitative impacts on Santander UK, in the event these exposures were to materialise.

Key indicators and their tolerance levels give us an objective view of risk exposure or the strength of a control at any point in time.

We review and update our scenarios each year to ensure they still represent our key operational risk exposures.

Risk mitigation strategies are discussed and agreed at various Risk committees within Santander.

We train our staff and require them to maintain a suitable level of competence to ensure customers can achieve appropriate outcomes.

We focus on ensuring we train our colleagues to recognise and support customers who may be vulnerable, or who may be experiencing financial stress, financial difficulty or financial abuse.

Where risk exposures are outside our Risk Appetite, our business units identify, assess, manage and monitor material actions to reduce the exposure back to within appetite.

Where appropriate, we use insurance to complement other risk mitigation measures.

Market risk comprises non-traded market risk and traded market risk.

We have no significant traded market risk exposure.

Then we explain how we manage these risks, including our structural hedge, and discuss our key market risk metrics.

We hedge risks from customer trades, mostly with Banco Santander SA.

We calculate market risk capital using standard rules.

The table below shows how our net interest income would be affected by a 100bps parallel shift (both up and down) applied instantaneously to the yield curve at 31 December 2025 and 31 December 2024.

Sensitivity to parallel shifts represents the amount of risk in a way that we think is both simple and scalable.

NII sensitivity is adversely exposed to down-shock scenarios, driven by margin compression of deposits, partially offset by the structural position.

EVE sensitivity reflects the potential impact on economic value due to the structural mismatch of assets and non-rate sensitive liabilities (excluding equity) over the longer term.

Our operational risk loss appetite sets the level of total operational risk loss (expected and unexpected) in any given year (on a 12-month rolling basis) that we consider to be acceptable.

We track actual losses against our appetite, and we escalate as needed.

Operational risk events occur when our controls do not operate as we planned and this leads to customer impact, financial loss, regulatory impacts and/or damage to our reputation.

We also use root cause analysis to identify emerging themes, to prevent or reduce the impacts of recurrence and to support risk and control assessments, scenario analysis and risk reporting.

Our ongoing transformation programme continues to be a key driver of reputational risk, particularly branch closures, as we announced a further round of closures in March 2025.

Scrutiny of this was heightened due to speculation at the beginning of 2025 that Santander might leave the UK.

Changes to our business banking account, redundancies made across Santander UK, as well as the departures of our CEO and Chair also attracted significant external attention.

To mitigate risks, we prepared extensive communication materials ahead of all key announcements, and regularly communicated our messages to external stakeholders.